Practical insight from The MGroup
As businesses grow and evolve, structure often follows necessity rather than strategy. At The MGroup, we regularly work with business owners who reach a point where revisiting how their companies are arranged becomes essential for tax efficiency, clarity and long term planning.
The article below explains how reconstructing associated companies into a group structure can unlock practical and strategic benefits when approached correctly.
Many business owners reach a point where they question whether their current company structure still supports their ambitions. Separate trading entities often grow organically, businesses make acquisitions over time, or owners keep activities apart for practical reasons. As a result, managing associated companies can become increasingly difficult. A group structure offers a practical way to bring order, improve tax efficiency and support a clearer long term strategy. While the process requires careful planning, it is usually far more straightforward than many owners expect.
Insight from our team
“Group reconstructions are often less about complexity and more about timing. When the structure begins to limit cash flow, planning or growth, that is usually the signal to step back and reassess.”
Ollie Squire, ACCA
What a group structure achieves
A group structure allows the owners to place several companies under a single holding company. This creates a framework that links the entities while still preserving the limited liability of each. The holding company acts as the parent, which introduces the possibility of group tax reliefs, smoother dividend flows and better protection of assets. It also creates a tidier position for succession planning, investment and future exit options. For many owners, the appeal of a group is the sense that the business finally reflects its true scale, with the structure supporting the way the enterprise actually operates.
Improving the movement of funds
When associated companies are left separate, profits are locked within each company. This can restrict reinvestment because funds are not easily moved to where they are needed. A group structure can remove this constraint. Once the companies sit under a common parent, tax free dividends can be paid between members of the group. This allows one entity to support another without the friction of additional tax charges, or for funds to be extracted and utilised for other investment opportunities. It also improves the stability of the wider business because spare resources in one company can be redeployed quickly. For growth minded owners, this can be transformative.
Insight from our team
“One of the most immediate benefits clients notice is flexibility. A group structure gives owners far more control over where cash sits and how it is used across the business.”
Jordan Lyne
Tax planning benefits
There are also clear tax planning advantages. Relief for losses is often one of the most immediate. Where a group exists, losses in one company can be set against profits in another, subject to standard rules. This can smooth tax liabilities and support companies that are either in early stage development or experiencing temporary cost pressures. Asset protection is another. High risk trading activity can be separated from valuable intellectual property or investment assets, which can sit in a different group company. If one part of the business experiences difficulties, the other parts may be better insulated from that risk.
How the reconstruction is carried out
Reconstruction usually follows a clear and established process. Business owners typically incorporate a new holding company and transfer the shares of the existing companies into it. Shareholders exchange their shares in the original companies for shares in the new parent company. When completed correctly, the transaction can qualify for tax neutral treatment. Share exchange and reorganisation rules allow ownership to change without triggering capital gains or stamp duty charges. Professional advice plays a key role, as the conditions must be met and documentation prepared accurately.
Practical considerations to address
It is worth noting that liabilities, banking arrangements, contracts and licences may need to be updated. Banks often require new guarantees or revised facility letters. Landlords may need comfort that the covenant strength of the tenant is unchanged. Contracts that include change of control clauses must be reviewed, as the introduction of a holding company may trigger notification requirements. These matters are manageable, although they need to be handled with care so that business continuity is not disrupted.
Long term advantages of moving to a group
A group structure brings discipline and clarity. Owners gain a single place from which to view the business as a whole, which can lead to better decision making. Future investment rounds can be structured more easily because new investors can be brought into the parent company rather than individual subsidiaries. If an eventual sale is planned, a group can make it simpler to sell a division or ring fence a particular activity. Disposals of certain subsidiaries can even be carried out without incurring a direct tax liability.
For many businesses, a group structure is a natural next step. It can unlock new opportunities, remove constraints and create a more resilient organisation. The key is to approach the reconstruction with a clear plan and good advice, so that the tax neutral status of the reorganisation is preserved. Once in place, the benefits tend to emerge quickly, and owners often wish they had acted sooner.
How The MGroup can support group reconstructions
Group restructures sit at the intersection of accounting, tax planning and long term strategy. Our team supports business owners through every stage, including:
- Business and corporate restructuring advice
- Group tax planning and reliefs
- Management accounts and group reporting
- Succession and exit planning support
Our approach ensures that restructures remain tax neutral, compliant and aligned with the wider ambitions of the business.
You can explore our full range of Accountancy Services
Further UK Government guidance
As part of moving to a group structure, businesses often need to review how VAT is accounted for across the group. Once a holding company and subsidiaries are in place, group VAT registration may become relevant.
HMRC’s guidance on group and divisional VAT registration (VAT Notice 700/2) explains when companies can register as a single VAT group, how this affects VAT reporting and what conditions must be met. This can be an important consideration when restructuring, particularly where transactions take place between group companies.
You can read the official UK Government guidance here:
https://www.gov.uk/guidance/group-and-divisional-registration-vat-notice-7002
This guidance provides a useful overview of how VAT grouping works in practice and highlights compliance points that business owners should consider as part of a wider group reconstruction.